Energy Price Inflation Will Formalise 3-2 Hybrid Work

Putin's War signals the end of 'Hybrid Max'

Firstly, welcome everybody to the first issue of Brainfood’s Open Kitchen on Substack.

I’ve been writing these essays on This Week, In Recruiting every week for the past year and half, but my feeling was that the LinkedIn newsletter had got too long to read, a little too hard to produce (it was really killing my weekends) - and, because the LinkedIn article editor was so buggy, too high of a risk of full draft wipe out with no prospect of recovery, which would also end up killing my Mondays 🤣

So Open Kitchen is now it’s own thing and will be sent out weekly on this Substack, on Thursdays. Weekly brainfood schedule will now look like this

Secondly, there are only 77 of you here, so well done to each of you for subbing to this so early 🤣. I know it’s always a risk to sign up to stuff, so I really appreciate you trusting me again with your inbox - you can be assured that it won’t ever be misplaced. It did occur to me to just import the tens of thousands of subscribers to my Sunday newsletter (Recruiting Brainfood) to this channel, but I did not want to presume consent as this is a different place and a different experience and so have decided to again start from zero. So thank you for joining me this early - I am excited to be growing this channel with you.

Finally, there seem to be some interesting community features on Substack which might significantly add to how you experience brainfood here. There is a cool comments feature, so you will be able to directly add your view to the observations I make, something which I welcome whether in support or dispute. Comments add the content and can sometimes even supersede it, so I encourage your contributions there if you have any to make.

Lets do this 👊

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Bad Ideas We Are Going To Do Anyway

I have been a critic of the maximalist position on hybrid ever since it suddenly became the consensus ‘right thing to do’ in the summer of ‘20. My argument has been made before so I don’t want to reiterate exhaustively, but in sum it was based on three main points:

Firstly, we collectively ignored the opinion of companies who were remote first before Covid-19. These were the companies who were experimenters with working modes before it was necessary to do so, and all of them had initially tried ‘hybrid max’ first - provision of an office, employees full freedom to choose if and when they want to come in - before invariably abandoning it usually in favour of going fully remote. Some had even provided public how-to guides for other companies who wanted to do similar experiments with explicit warnings not to try hybrid max because nobody showed up to the office and you massively increase cultural overhead.

Secondly, hybrid max presented obvious challenges to operational efficiency without any clear upside. Routine events now needed forethought, additional administrative overhead and lots of follow up to ensure everyone had the same context. If you had experienced ‘Zoom fatigue’ in this period, it would be because managers were very keen to ensure ‘you had context’ - essentially be on the same page as everyone else, a calibration which would’ve previously happened through the zero effort method of sitting at the same bank of desks and allowing osmotic information transfer to do the work. After 18 months of doing hybrid max, it isn’t clear if any company got better because of it (increase revenue, build better products, provide better service?), but we all did get slower, more political and more inefficient. The bosses - who we love to lambaste as inhumane profit optimisers - wouldn’t be complaining otherwise.

Finally, perhaps my biggest problem with hybrid max was that it really felt like a non-decision. We arrived to it without due diligence, without much debate and certainly without strategy. After the trauma of lockdown, job insecurity and of course very real fear of pandemic - hybrid max simply felt like the easiest thing to do next. We were massively concerned about our people, rightly wanted to prioritise employee needs above all else and perhaps feared conflict with those employees who had found during enforced WFH that they rather liked having maximum choice, with minimum constraint. As such hybrid max became one of those ‘bad ideas we were going to do anyway’ - a clear failure of leadership.

As an operator of a one man business who hadn’t had an office in a decade, I had no stake in the game so didn’t want to advocate too hard one way or the other. However, as observer of the future of work, I was interested to see how fast Hybrid Max would go through Gartner Hype Cycle. What I didn’t expect was that geopolitics might accelerate that journey.

How We Are Currently Doing Hybrid?

I came across this chart from the AWA Hybrid Working Index last week and it got me thinking about where we are currently at with hybrid. For employers operating the maximalist version of hybrid, the revealed preferences of the employees is telling.

(Image credit: AWA Hybrid Working Index, 2022)

We clearly don’t ever want to come in on Friday’s and are generally keen to avoid coming in on Monday’s too. For those who do come in on those days, the sense of ‘empty office’ must be keenly felt as average attendance goes down to 19% on Mondays and as low as 12% on Fridays.

No single day had more people in vs people out, with Wednesday and Thursday able to end up being the most popular days with only 30% and 31% attendance sufficient to top the table. This means that the office is under utilised all of the time, with no day at capacity, every day running at less than 1/3 capacity, and the worse days at just over 1/10 capacity.

This self evident inefficiency was tolerated for as long as the prospect of a post pandemic return to economic growth and subsequent competition for talent were the driving forces of business decision making. But Putin’s war on Ukraine has reset the board, ushering in an era of openly hostile de-globalisation. The ongoing and chaotic dismantling of the global system will produce unpredictable second and third order effects, apart from the only one which can be confidently predicted - that prices, on everything - are going to go up as globalised supply chains get replaced by regionalised supply chains.

This of course includes the price of energy, the escalating inflation of which makes the maintenance of 2/3rd empty office an egregious, rather than tolerable liability. It’s hard to see how Hybrid Max is going to continue to be tenable under these market conditions.

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Persistent Energy Price Inflation

Optimists might say ‘it’s just a matter of replacing Russian supply’, but even a cursory review of the energy economy will be enough to tell you that this will not easily - or even feasibly - happen. There are is a finite amount of gas, and a finite number of gas suppliers.

Two of the three biggest suppliers of natural gas are either currently under extra territorial US sanctions (Iran) or restricting the supply as an economic weapon (Russia). This reduction of supply and - the prospect of future shortages - inevitably leads to the hoarding to natural gas in preparation for the winter - Germany has increased its gas storage to 82% capacity and aims to be 85% within the month. Accordingly, the International Energy Agency says we can expect 3 years of energy price volatility, with projected peak costs in Q4 2023.

The extraordinary spike in the cost of energy was made real to many people in the UK last week when the energy regulator Ofgem raised the energy bill price cap from £1,971 to £3,549 per household, an increase of 80% on the previous upper limit. The next price cap will be announced only 3 months later, with the expectation of yet another rise in January 2023, and perhaps again in April 2023.

And yet as bad as this is for households, the situation for businesses is actually far worse, as the price caps covers only residential use. All businesses need energy, from the chemical factory in Billingham to The Rose & Crown in Bebington - and all of them are going to be faced with anything from a x2 to x10 increase in energy costs for the next quarter alone, and almost certainly more for the foreseeable future.

Energy price inflation will impact for knowledge worker businesses too. Even though white collar businesses do not have the energy intensity of industrial production or food retail, offices still need heating and lighting. And the problem with Hybrid Max is that the under used office still needs to be fully provisioned as if it were fully utilised. You can’t heat half the office and I’ve yet to see any implementation of motion sensing lighting or even whether this would be a good idea. Now to be clear, office heating / lighting is likely to be a small percentage of the liabilities of any business, but as a liability which is both guaranteed to increase in cost yet is entirely reducible through better management, then you can be sure that responsible CEO/CFO’s are going to be making decisions on where to reduce costs.

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Accelerate to Fully Remote, Fully On Premise or Hybrid Fix

The poll below was conducted around 18 months ago, as part of a conversation with my LinkedIn network of 30,000, most of whom are recruiters or in recruitment adjacent fields. The data is old but my intuition tells me that this ratio broadly still rings true.

My conjecture is that energy price inflation will elevate the neglected idea of business efficiency up the priority list of C-level and consequently increase the numbers of organisations shifting away Hybrid Max. The energy cost benefits of full remote are obvious - employers can simply push the entire cost of heating / lighting onto the employees. For full on premise, the cost will not go down but the wastage will, as utility goes up to 100%. Hybrid B (Hybrid Fixed) is likely to be the most popular option - as its the easiest transition for Hybrid Maxers to make - just align with what employees are mainly doing anyway and formalise the days in office to Tues-Wed-Thurs with mandated WFH on Monday/Friday, and simply shut the office down in those days.

So, we end up with slightly more remote only (25%?), slightly more fully on premise (10%?) and a lot more Hybrid Fixed, with set days in office (50%?). It’s probably going to be a decent outcome and I suspect most knowledge workers are going to accept it.

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So that’s the first essay in Brainfood’s Open Kitchen - I hope you got some value from it. Please do let me know in comments below what could be improved, do me a favour and share this Substack to your network if you think it feeds the community’s collective brain is some way.

PS: pls vote in the poll above, I think it will be fun way to figure out how to have better conversations in our community.

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